<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the quarterly period ended SEPTEMBER 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______ to _______.
Commission File Number 0-18048
-------------------
SA TELECOMMUNICATIONS, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 75-2258519
- --------------------------------- ------------------------------------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
1600 PROMENADE CENTER, 15TH FLOOR, RICHARDSON, TEXAS 75080
- ---------------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(972) 690-5888
--------------------------------------------------
(Issuer's telephone number)
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
There were 15,620,535 shares of the registrant's common stock outstanding as of
November 12, 1996.
Transitional Small Business Disclosure Format (Check One):
Yes No X
---- -----
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information Page
----
Item 1 - Financial Statements
Consolidated Balance Sheets 1-2
Consolidated Statements of Operations 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
Part II. Other Information
Item 1. - Legal Proceedings 14
Item 2. - Change in Securities 14
Item 3. - Defaults Upon Senior Securities 15
Item 4. - Submission of Matters to a Vote of Security Holders 15
Item 5. - Other Information 15
Item 6. - Exhibits and Reports on Form 8-K 15
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,690,949 $ 823,738
Accounts and notes receivable:
Trade, net of allowance for doubtful accounts
of $398,585 and $475,845, respectively 5,338,035 4,022,131
Other, net of allowance for doubtful
accounts of $31,479 1,435,050 407,550
Inventory 102,671 146,037
Prepaid expenses and other 1,043,467 292,439
----------- -----------
Total current assets 20,610,172 5,691,895
----------- -----------
Property and equipment 8,704,678 3,911,652
Less accumulated depreciation and amortization (1,282,698) (495,613)
----------- -----------
Net property and equipment 7,421,980 3,416,039
----------- -----------
Excess of cost over net assets acquired, net of accumulated amortization
of $1,837,784 and $1,068,833, respectively 17,720,894 16,869,648
----------- -----------
Other assets:
Debt issuance costs 2,065,068 -
Other 424,568 63,221
----------- -----------
Total other assets 2,489,636 63,221
----------- -----------
Total assets $48,242,682 $26,040,803
----------- -----------
----------- -----------
-Continued-
The accompanying notes are an integral part of these consolidated financial statements.
1
</TABLE>
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 1,475,812 $ 761,880
Accrued telecommunications expenses 1,821,410 2,337,420
Other accrued expenses 1,337,923 1,163,603
Acquisition obligation 2,070,000 -
Short-term notes payable 44,429 475,610
Current maturities of long-term debt 528,873 3,795,216
------------ ------------
Total current liabilities 7,278,447 8,533,729
------------ ------------
Long-term obligations, less current maturities 28,584,844 7,398,670
------------ ------------
Commitments and contingencies
Series A redeemable preferred stock, $.00001 par value, 250,000
shares authorized; 180,000 and 166,667 shares issued, respectively 1,310,092 1,129,459
------------ ------------
Shareholders' equity:
Series B Preferred stock, $.00001 par value, 12,500,000
shares authorized, 125,000 shares issued in 1995 - 575,280
Common Stock, $.0001 par value, 50,000,000 shares
authorized; 16,818,053 and 13,462,120 issued, respectively 1,682 1,346
Additional paid-in capital 26,478,621 20,855,099
Retained deficit (11,557,089) (11,996,179)
Treasury stock (1,197,518 shares and 240,072 shares,
respectively) at cost (3,853,915) (456,601)
------------ ------------
Total shareholders' equity 11,069,299 8,978,945
------------ ------------
Total liabilities and shareholders' equity $ 48,242,682 $ 26,040,803
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated financial statements.
2
</TABLE>
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the three months For the nine months
ended September 30, ended September 30,
------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- -----
<S> <C> <C> <C> <C>
Telecommunications revenues $ 7,961,784 $ 7,459,367 $ 22,199,729 $ 13,772,942
Cost of revenue 4,769,107 4,944,734 13,058,866 9,574,931
------------ ----------- ------------ ------------
Gross profit 3,192,677 2,514,633 9,140,863 4,198,011
Operating expenses:
General and administrative 2,762,803 2,547,565 7,408,554 4,528,945
Depreciation and amortization 658,924 533,213 1,606,740 909,014
Nonrecurring Russian venture charges -- 143,558 -- 143,558
----------- ----------- ------------ ------------
Total operating expenses 3,421,727 3,224,336 9,015,294 5,581,517
----------- ----------- ------------ ------------
Income (loss) from continuing operations before other income
(expense) and extraordinary item (229,050) (709,703) 125,569 (1,383,506)
----------- ----------- ------------ ------------
Other income (expense):
Interest expense (658,212) (253,727) (1,352,072) (364,260)
Other 51,857 12,465 46,352 9,820
----------- ----------- ------------ ------------
Total other income (expense) (606,355) (241,262) (1,305,720) (354,440)
----------- ----------- ------------ ------------
Loss from continuing operations before extraordinary item (835,405) (950,965) (1,180,151) (1,737,946)
Discontinued operations -
Provision for operating losses during phase-out period -- (225,000) -- (475,000)
----------- ----------- ------------ ------------
Loss before extraordinary item (835,405) (1,175,965) (1,180,151) (2,212,946)
Extraordinary item - gain (loss) on extinguishment of debt (331,813) -- 1,817,378 --
----------- ----------- ------------ ------------
Net income (loss) (1,167,218) (1,175,965) 637,227 (2,212,946)
Preferred dividend requirements, including accretion (50,211) (36,667) (198,137) (36,667)
----------- ----------- ------------ ------------
Net income (loss) applicable to common shareholders $(1,217,429) $(1,212,632) $ 439,090 $ (2,249,613)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Income (loss) per common share and common share equivalent:
Continuing operations $ (0.05) $ (0.08) $ (0.07) $ (0.16)
Discontinued operations -- (0.02) -- (0.04)
Extraordinary item (0.02) -- 0.11 --
----------- ----------- ------------ ------------
Net income (loss) per share $ (0.07) $ (0.10) $ 0.04 $ (0.20)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Net income (loss) per share applicable to common shareholders $ (0.07) $ (0.10) $ 0.02 $ (0.20)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Weighted average number of common share & common share
equivalents outstanding 16,117,789 11,778,005 16,962,389 11,129,177
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Income (loss) per common share - assuming full dilution:
Continuing operations $ (0.05) $ (0.08) $ (0.06) $ (0.16)
Discontinued operations -- (0.02) -- (0.04)
Extraordinary item (0.02) -- 0.10 --
----------- ----------- ------------ ------------
Net income (loss) per share $ (0.07) $ (0.10) $ 0.04 $ (0.20)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Net income (loss) per share applicable to common shareholders $ (0.07) $ (0.10) $ 0.02 $ (0.20)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Weighted average number of common shares outstanding
- assuming full dilution 16,117,789 11,778,005 18,402,389 11,129,177
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
Series B
Preferred Stock Common Stock Additional
------------------ --------------- paid-in Retained Treasury
Shares Amount Shares Amount capital deficit Stock
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 10,566,139 $ 1,057 $ 15,629,114 $ (5,404,864) $ (240,950)
Private placements of common stock 1,591,459 159 1,934,337
Issuance of common stock for
exercise of options 829,505 83 538,420 (215,651)
Issuance of Series A Redeemable
Preferred stock for acquisition of USC 261,250
Issuance of Series B Preferred Stock
for acquisition of USC 125,000 $ 637,874 612,126
Issuance of Common Stock Purchase
Warrants for acquisition of USC 2,303,300
Net loss for the period (2,249,613)
-------- ---------- ---------- ------- ------------ ------------ ------------
Balances at September 30, 1995 125,000 $ 637,874 12,987,103 $ 1,299 $ 21,278,547 $ (7,654,477) $ (456,601)
-------- ---------- ---------- ------- ------------ ------------ ------------
-------- ---------- ---------- ------- ------------ ------------ ------------
Balances at December 31, 1995 125,000 $ 575,280 13,462,120 $ 1,346 $ 20,855,099 $(11,996,179) $ (456,601)
Private placements of common stock 251,700 25 369,975
Issuance of common stock for:
Exercise of options 484,036 48 540,413 (497,314)
Exercise of warrants 1,090,000 109 1,362,391
Conversion of debt 267,856 27 449,973
Other 419,318 42 918,614
Issuance of common stock for
acquisition of USC securities (125,000) (575,280) 843,023 85 1,613,229 (2,900,000)
Issuance of warrants 368,927
Preferred dividend requirements,
including accretion (198,137)
Net income for the period 637,227
-------- ---------- ---------- ------- ------------ ------------ ------------
Balances at September 30, 1996 -- $ -- 16,818,053 $ 1,682 $ 26,478,621 $(11,557,089) $ (3,853,915)
-------- ---------- ---------- ------- ------------ ------------ ------------
-------- ---------- ---------- ------- ------------ ------------ ------------
Total
-----
<S> <C>
Balances at December 31, 1994 $ 9,984,357
Private placements of common stock 1,934,496
Issuance of common stock for
exercise of options 322,852
Issuance of Series A Redeemable
Preferred stock for acquisition of USC 261,250
Issuance of Series B Preferred Stock
for acquisition of USC 1,250,000
Issuance of Common Stock Purchase
Warrants for acquisition of USC 2,303,300
Net loss for the period (2,249,613)
-------------
Balances at September 30, 1995 $ 13,806,642
-------------
-------------
Balances at December 31, 1995 $ 8,978,945
Private placements of common stock 370,000
Issuance of common stock for:
Exercise of options 43,147
Exercise of warrants 1,362,500
Conversion of debt 450,000
Other 918,656
Issuance of common stock for
acquisition of USC securities (1,861,966)
Issuance of warrants 368,927
Preferred dividend requirements,
including accretion (198,137)
Net income for the period 637,227
-------------
Balances at September 30, 1996 $ 11,069,299
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
For the nine months
ended September 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 637,227 $(2,249,613)
Adjustments to reconcile net loss to net cash used by
operating activities:
Loss from discontinued operations -- 475,000
Extraordinary item - gain on extinguishment of debt (1,817,378) --
Depreciation and amortization 1,596,386 909,014
Provision for losses on accounts receivable 718,742 312,522
Provision for Russian venture losses -- 143,558
Cash used for discontinued SATC business -- (227,482)
(Increase) decrease in:
Accounts and notes receivabe (2,346,652) (1,042,748)
Prepaid expenses and other (320,624) 114,555
Other assets (440,838) 41,244
Increase (decrease) in:
Accounts payable and accrued expenses 113,588 18,773
----------- -----------
Net cash used in operating activities (1,859,549) (1,505,177)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (2,546,914) (65,792)
Purchase of USC, net of cash acquired -- (6,854,247)
Cash used for discontinued SATC business -- (23,319)
Other -- (30,573)
----------- -----------
Net cash used in investing activities (2,546,914) (6,973,931)
----------- -----------
Cash flows from financing activities:
Net changes in short-term loans (10,571) (468,028)
Increase in long term debt 29,300,695 7,000,000
Principal payments on long-term obligations (9,519,771) (1,171,182)
Debt issuance cost (2,156,208) --
Proceeds from private placement of common stock -- 1,682,503
Proceeds from Series A Preferred Stock -- 1,000,000
Proceeds from exercise of warrants 1,359,149 --
Proceeds from exercise of options 200,380 375,459
Purchase of treasury stock (2,900,000) --
----------- -----------
Net cash provided by financing activities 16,273,674 8,418,752
----------- -----------
Increase (decrease) in cash and equivalents 11,867,211 (60,356)
Cash at beginning of period 823,738 331,431
----------- -----------
Cash and equivalents at end of period $12,690,949 $ 271,075
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements are those of SA
Telecommunications, Inc. and subsidiaries (the "Company"). These
interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10-QSB. The December 31, 1995
consolidated balance sheet data was derived from audited consolidated
financial statements but does not include all disclosures required by
generally accepted accounting principles. The interim consolidated
financial statements and notes thereto should be read in conjunction
with the consolidated statements and notes included in the Company's
latest annual report on Form 10-KSB. In the opinion of management, the
interim consolidated financial statements reflect all adjustments
(consisting only of a normal recurring nature) necessary for a fair
presentation of the consolidated financial position and consolidated
results of operations for interim periods. The current period
consolidated results of operations are not necessarily indicative of
results which ultimately will be reported for the full fiscal year
ending December 31, 1996.
All significant intercompany accounts and transactions have been
eliminated. Certain prior period amounts have been reclassified for
comparative purposes.
NOTE B - ACQUISITION OF FIRST CHOICE LONG DISTANCE, INC.
Effective September 1, 1996, the Company acquired substantially all of
the assets of First Choice Long Distance, Inc., a switch-based
reseller located in Amarillo, Texas, for a total consideration of
$2,070,000 (including noncompete agreements). The assets acquired
included First Choice's customer base of approximately 4,500 customers
and two Siemens Stromberg-Carlson DCO Central Office type switches,
which will be integrated into the Company's existing network. First
Choice has annualized revenues of approximately $3 million, based on
its August 1996 unaudited monthly revenue.
The acquisition was accounted for as a purchase, whereby the excess
purchase price over the net assets acquired has been recorded based
upon the fair market values of assets acquired. The excess of cost
over net assets acquired of $454,000 and noncompete agreements of
$720,000 are being amortized on a straight-line basis over 25 and 2
years, respectively. This allocation was based on preliminary
estimates and may be revised at a later date. The Company's
consolidated statements of operations include the results of operations
of First Choice since September 1, 1996.
The following unaudited pro forma combined results of operations of the
Company assumes that the acquisition of First Choice was completed at
the beginning of 1995. These pro forma amounts represent the
historical operating results of First Choice combined with those of the
Company with appropriate adjustments which give effect to interest
expense and amortization expense. These pro forma amounts are not
necessarily indicative of consolidated operating results which would
have been included in the operations of the Company during the periods
presented, or which may result in the future, because these amounts do
not reflect full transmission and switched service cost optimization,
and the synergistic effect of operating, selling, general and
administrative expenses.
FOR THE NINE MONTHS
ENDED SEPTEMBER 30
------------------
1996 1995
------ ------
Revenues $24,367,722 $16,318,071
Net income (loss) 318,779 (2,639,474)
Net income (loss) per share outstanding $0.02 $(0.24)
6
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE C - NOTES PAYABLE AND LONG TERM DEBT
On February 9, 1996, $450,000 of the Company's 8% Convertible
Subordinated Debentures due in June 1996 were converted into 267,856
shares of the Company's Common Stock.
On August 12, 1996, the Company consummated a private placement of
$27,200,000 of its 10% Convertible Notes Due 2006 (the "Notes"). The
Notes are currently convertible into the Company's Common Stock at a
conversion price of $2.55 per share. The net proceeds from the sale of
the Notes were approximately $25.4 million after giving effect to the
transaction related fees and expenses. The Company used
approximately $12.0 million of the net proceeds from the private
placement to repay certain indebtedness, and to repurchase or redeem
certain shares of the Company's Common Stock and outstanding
debentures. The Company plans to utilize the balance of the proceeds
(approximately $13.4 million) primarily to effect acquisitions and
strategic alliances, to make capital expenditures, and for general
corporate purposes.
In September 1996, the Company redeemed its $2,000,000 principal
amount of convertible debentures which had been issued in March, April
and June of 1996. A $331,813 loss on extinguishment of debt was
recorded on this redemption. This loss was incurred because the
debentures had been recorded at less than their principal or face
amount due to the valuation of warrants issued in conjunction with
these debentures.
NOTE D - STOCK OPTIONS
On March 28, 1996, the Board of Directors granted options under the
1994 Employee Stock Option Plan to purchase up to 607,500 shares of the
Company's Common Stock to employees at a price of $2.03 per share
(market value on the date of grant). After a six-month waiting period,
the shares acquired upon exercise may not be sold earlier than periods
varying from eighteen to thirty months.
NOTE E - COMMON STOCK PURCHASE WARRANTS
On May 7, 1996, six holders of the Common Stock Purchase Warrants
issued in the Company's September 20, 1995 private placement exercised
such warrants for an aggregate of 1,070,000 shares of Common Stock at
an exercise price of $1.25 per share or $1,337,500. In connection with
such early exercise, the Company issued additional Common Stock
Purchase Warrants to such holders exercisable into an aggregate of
1,337,500 shares of Common Stock at an exercise price of $2.40 per
share between November 7, 1996 and May 7, 1998. One of the holders of
such warrants exercisable into 750,000 shares of Common Stock has
agreed not to exercise such warrants before January 7, 1997.
NOTE F - EARNINGS (LOSS) PER SHARE
Earnings per share were calculated based upon the weighted average
number of shares outstanding during the period plus the dilutive effect
of stock options, stock warrants, and Series A Preferred Stock using
the Modified Treasury Stock method, except where the assumed exercise
or conversion of such stock options, stock warrants and Series A
Preferred Stock would be anti-dilutive.
7
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE F - EARNINGS (LOSS) PER SHARE - CONTINUED
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
PRIMARY:
Average Shares Outstanding 16,117,789 11,778,005 14,972,546 11,129,177
Stock Options -- -- 2,948,023 --
Stock Warrants -- -- 1,394,907 --
---------- ---------- ---------- ----------
Total 16,117,789 11,778,005 19,315,476 11,129,177
Less: Shares purchased under
the Treasury Method -- -- (2,343,087) --
---------- ---------- ---------- ----------
16,117,789 11,778,005 16,962,389 11,129,177
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
FULL DILUTION:
Average Shares Outstanding 16,117,789 11,778,005 14,972,546 11,129,177
Stock Options -- -- 2,948,023 --
Stock Warrants -- -- 1,394,907 --
Series A Preferred Stock -- -- 1,440,000 --
---------- ---------- ---------- ----------
Total 16,117,789 11,778,005 20,755,476 11,129,177
Less: Shares purchased under
the Treasury Stock Method -- -- (2,353,087) --
---------- ---------- ---------- ----------
16,117,789 11,778,005 18,402,389 11,129,177
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NOTE G - PURCHASE OF USC SECURITIES
In 1995, in connection with the acquisition of U.S. Communications, Inc.
("USC"), the Company issued securities ("USC Securities") comprised of
(i) the notes having an original principal amount of $4,250,000 (ii)
125,000 shares of Series B Cumulative Convertible Preferred Stock, and
(iii) warrants exercisable into an aggregate of 1,050,000 shares of
Common Stock at $1.25 per share.
On June 21, 1996, the Company completed the acquisition of all of the
USC Securities for an aggregate of $308,500 of cash and the issuance of
843,023 shares of the Company's Common Stock, resulting in an
extraordinary gain on early extinguishment of debt in the amount of
$2,149,191. On August 14, 1996, the Company reacquired the 843,023
shares of the Company's Common Stock for $2,900,000 of cash.
8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three month and nine month periods
ended September 30, 1996 and 1995. It should be read in conjunction with the
Company's latest annual report on Form 10-KSB.
GENERAL
The Company is a regional interexchange carrier ("IXC") providing a wide
range of domestic telecommunications services through its network of owned
and leased facilities. The Company's customer base is primarily composed of
small and medium sized commercial accounts and residential customers
concentrated in secondary and rural markets in the southwestern United
States. In addition to providing "1+" domestic long distance services, the
Company also offers international long distance services, operator services,
paging services, and other products such as voice and data private lines,
"800/888" services, travel cards, wholesale long distance services, and local
exchange services through an alliance with Southwestern Bell.
The Company entered the telecommunications business in 1991 through the
acquisition of North American Telecommunications Corporation ("NATC"), a
telecommunications provider offering international long distance service to
foreign customers. In 1994 and 1995, the Company acquired two Texas-based
switched resellers, Long Distance Network, Inc. ("LDN") of Dallas, Texas and
U.S. Communications, Inc. ("USC") of Levelland, Texas. During 1996, the
Company completed asset acquisitions of switched resellers of long distance
telephone services located in Amarillo and McKinney, Texas, and acquired the
stock of Uniquest Communications, Inc., a company engaged in outbound
telemarketing and third party customer verification services. Also during
1996, the Company expanded its network through the acquisition of switching
equipment in Amarillo and Lubbock, Texas and Phoenix, Arizona and the
additions of leased transmission facilities between the Phoenix switch and
the Company's switches in Dallas and Levelland, Texas.
The Amarillo, Texas asset acquisition of First Choice Long Distance, Inc. was
effective September 1, 1996. The assets acquired included First Choice's
customer base of approximately 4,500 customers and two Siemens Stromberg-Carlson
DCO Central Office type switches, which will be integrated into the Company's
existing network. First Choice has annualized revenues of approximately $3
million based on its August 1996 monthly revenue.
The Company markets its services in areas in the southwestern United States
served by its network primarily under the "USC," "USI," "Southwest Long
Distance Network" and "First Choice Long Distance" trade names. The growth
of the Company's initial customer base was the result of its acquisitions of
LDN, USC and First Choice. The Company anticipates future growth will result
from sales and marketing efforts of its sales force and from continued
acquisitions of telecommunications companies within its market area or
adjacent thereto.
On August 12, 1996, the Company consummated a private placement of $27,200,000
of its 10% Convertible Notes due 2006 (the "Notes"). The Notes are currently
convertible into the Company's Common Stock at a conversion price of $2.55 per
share. The net proceeds from the sale of the Notes were approximately $25.4
million after giving effect to the transaction related fees and expenses. The
Company used approximately $12.0 million of the net proceeds from the private
placement to repay certain indebtedness, and to repurchase or redeem certain
shares of the Company's Common Stock and outstanding debentures. The Company
plans to utilize the balance of the proceeds (approximately $13.4 million)
primarily to effect acquisitions and strategic alliances, to make capital
expenditures, and for general corporate purposes.
FORWARD-LOOKING STATEMENTS
Certain of the statements made in this report are forward-looking. Such
statements are based on an assessment of a variety of factors, contingencies
and uncertainties deemed relevant to management, including the Company's
current negative cash flow position, the Company's historical operating
losses, the need for integration of the Company's acquisitions, the
regulatory environment, and other risks indicated in this and the other
filings with the Securities and Exchange Commission. As a result, the actual
results realized by the Company could differ materially from the statements
made herein. Readers of this report are cautioned not to place undue
reliance on the forward-looking statements made in this report.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's Consolidated
Statements of Operations as a percentage of its operating revenues for the three
and nine month periods ended September 30, 1996 and 1995.
<TABLE>
For the three For the nine
months ended months ended
September 30, September 30,
---------------------- -----------------------
1996 1995 1996 1995
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 60 66 59 70
-------- -------- ---------- ---------
Gross profit 40 34 41 30
Operating expenses:
General and administrative 35 34 33 33
Depreciation and amortization 8 7 7 6
Nonrecurring Russian venture charge -- 2 -- 1
-------- -------- ---------- ---------
Income (loss) from continuing operations (3) (9) 1 (10)
Other income (expense) (8) (3) (6) (3)
Discontinued operations -- (3) -- (3)
Extraordinary gain (loss) on extinguishment of debt (4) -- 8 --
-------- -------- ---------- ---------
Net income (loss) (15)% (15)% 3 % (16)%
-------- -------- ---------- ---------
-------- -------- ---------- ---------
EBITDA(1) (loss), as defined $429,874 $(32,932) $1,732,309 $(330,934)
-------- -------- ---------- ---------
-------- -------- ---------- ---------
</TABLE>
(1) Earnings (loss) before interest, taxes, depreciation, amortization,
nonrecurring charges, and other income (expense) or "EBITDA" (as defined),
is a commonly used measure of performance in the telecommunications
industry. As used herein, EBITDA is not intended as either a substitute
or replacement for operating income (as presented according to GAAP) as
a measure of financial results of operations or for cash flows from
operations (as presented according to GAAP).
THREE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues increased by $502,417, or 7%, from $7,459,367 for the three months
ended September 30, 1995 to $7,961,784 for the three months ended September
30, 1996. This $502,417 net increase in revenues was the result of (i) the
First Choice acquisition which contributed $222,923, (ii) a $501,570 increase
in the Company's "1+" revenue primarily arising from internal growth
(excluding the First Choice acquisition), and (iii) a net decline of $222,076
in revenue relating to certain operator services, and the Company's wholesale
and international business which the Company is de-emphasizing. The Company
has continued to emphasize the generation of "1+" revenue from internal
growth and acquisitions, and to de-emphasize the marketing of its operator
service, wholesale and international business because "1+" business carries
higher gross profit margins. As a result, the Company expects its operator
services, wholesale and international revenues to remain flat or decline in
the future, unless an opportunity arises whereby the margins for such lines of
business are comparable to the Company's other products.
Gross profit increased by $645,042 from $2,547,633 for the three months ended
September 30, 1995 to $3,192,677 for the same quarter in 1996. The gross profit
margin increased by 6% from 34% for the three months ended September 30, 1995 to
40% for the three months ended September 30, 1996. This increase was primarily
attributable to the integration and operation of the Company's network coupled
with an increased number of calls originating and terminating on the network.
Additionally, there has been an improved call mix with the lower margin operator
service and wholesale traffic declining while being replaced with the higher
margin "1+" type traffic.
General and administrative expense increased by $215,238 from $2,547,565 for
the three months ended September 30, 1995 to $2,762,803 for the same quarter
in 1996, and as a percentage of revenues, increased from 34% in 1995 to 35%
in 1996. The increase in total general and administrative expense and small
increase as a percentage of revenues is primarily attributable to the gearing
up for additional growth and acquisitions in anticipation of an earlier
closing date for the Note Offering than the actual closing date in August 1996.
Depreciation and amortization expense increased by $125,711 from $533,213 for
the three months ended September 30, 1995 to $658,924
10
<PAGE>
for the same quarter in 1996, and as a percentage of revenues, increased from
7% in 1995 to 8% in 1996. This increase resulted from higher depreciation and
amortization charges arising from the acquisition of First Choice and
increased depreciation from the acquisition of switching and other network
equipment.
During the third quarter of 1995, the Company incurred a $143,558
nonrecurring charge to operations relating to the discontinuation of its
non-telecommunications Russian ventures. This charge was made for costs
associated with winding down the affairs of these ventures including
termination costs, collectability of receivables, and write-downs of certain
assets.
EBITDA increased by $462,806 from a negative $32,932 for the three months ended
September 30,1995 to a positive $429,874 for the same quarter in 1996. This
increase is primarily attributable to improved gross profit margins on increased
revenues.
The Company incurred a loss from continuing operations of $709,703 for the three
months ended September 30, 1995 versus a loss from continuing operations of
$229,050 for the same quarter in 1996. This improvement was primarily
attributable to improved gross profit margins, partially offset by increased
depreciation and amortization.
The Company had net other expense of $241,262 for the three months ended
September 30, 1995 compared to net other expense of $606,355 for the same
quarter in 1996. This increase was primarily due to an increase in interest
expense from $253,727 to $658,212 related to the issuance of the Notes in
August 1996.
The Company recorded an additional $225,000 provision for operating losses
during the phase-out period for its discontinued Strategic Abstract and Title
Corporation ("SATC") subsidiary for the three months ended September 30, 1995.
On February 29, 1996, SATC was sold to a key member of SATC management and an
impairment loss was recorded as of December 31, 1995.
The Company incurred a loss on extinguishment of debt of $331,813 for the three
months ended September 30, 1996. This loss relates to the Company's redemption
of its $2 million principal amount of convertible debentures from the proceeds
of the Note offering. The convertible debentures had been recorded at less than
the principal or face amount due to the valuation of warrants issued in
conjunction with these convertible debentures.
The Company incurred a net loss of $1,175,965 for the three months ended
September 30, 1995 as compared to a net loss of $1,167,218 for the same quarter
in 1996. This improvement is primarily attributable to the increased
interest expense and the one-time extraordinary loss on extinguishment of debt,
partially offset by improved gross profit margins on increased revenues.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1995
Revenues increased $8,426,787, or 61%, from $13,772,942 for the nine months
ended September 30, 1995 to $22,199,729 for the nine months ended September
30, 1996. This $8,426,787 net increase in revenues was the result of (i) the
customers, net of attrition, obtained in the USC acquisition which
contributed $5,971,677, (ii) the First Choice acquisition which contributed
$222,923, (iii) a $3,112,283 increase in the Company's "1+" revenue
primarily arising from internal growth (excluding the USC and First Choice
acquisitions), and (iv) a net decline of $880,096 in revenue relating to
certain operator services, and the Company's wholesale and international
business which the Company is de-emphasizing. The Company has continued to
emphasize the generation of "1+" revenue from internal growth and
acquisitions, and to de-emphasize the marketing of its operator service,
wholesale and international business because "1+" business carries a higher
gross profit margin. As a result, the Company expects its operator services,
wholesale and international revenues to remain flat or decline in the future,
unless an opportunity arises whereby the margins for such lines of business
are comparable to the Company's other products.
Gross profit increased by $4,942,853 from $4,198,011 for the nine months ended
September 30, 1995 to $9,140,863 for the nine months ended September 30, 1996.
The gross profit margin increased by 11% from 30% for the nine months ended
September 30, 1995 to 41% for the nine months ended September 30, 1996. This
increase was primarily attributable to the integration and operation of the
Company's network coupled with an increased number of calls originating and
terminating on the network. Additionally, there has been an improved call mix
with the lower margin operator service and wholesale traffic declining while
being replaced with the higher margin "1+" type traffic.
General and administrative expense increased by $2,879,609 from $4,528,945 for
the nine months ended September 30, 1995 to $7,408,554 for the nine months
ended September 30, 1996, and as a percentage of revenues, remained constant at
33% during each respective period. The increase in total general and
administrative expense is attributable to the gearing up for additional
growth and acquisitions in anticipation of an earlier closing date for the Note
offering.
11
<PAGE>
Depreciation and amortization expense increased by $697,726 from $909,014 for
the nine months ended September 30, 1995 to $1,606,740 for the same nine months
ended September 30, 1996, and as a percentage of revenues, increased from 6% in
1995 to 7% in 1996. This increase resulted from higher depreciation and
amortization charges arising from the acquisition of First Choice and increased
depreciation from the acquisition of switching and other network equipment.
During the third quarter of 1995, the Company incurred a $143,558
nonrecurring charge to operations related to the discontinuation of its
non-telecommunications Russian ventures. This charge was made for costs
associated with winding down the affairs of these ventures including
termination costs, collectibility of receivables, and write-down of certain
assets.
EBITDA increased by $2,063,243 from a negative $330,934 for the nine months
ended September 30, 1995 to a positive $1,732,309 for the nine months ended
September 30, 1996. This increase is primarily attributable to improved gross
profit margins on increased revenues.
The Company incurred a loss from continuing operations of $1,383,506 for the
nine months ended September 30, 1995 versus income from continuing operations
of $125,569 for the same period in 1996. This improvement was primarily
attributable to improved gross profit margins.
The Company had net other expense of $354,440 for the nine months ended
September 30, 1995 compared to the net other expense of $1,305,720 for the same
period in 1996. This increase was primarily due to an increase in interest
expense from $364,260 to $1,352,072 related to the issuance of the Notes in
August 1996.
The Company recorded an additional $475,000 provision for operating losses
during the phase-out period for its discontinued SATC subsidiary for the nine
months ended September 30, 1995. On February 29, 1996, SATC was sold to a key
member of SATC management and an impairment loss was recorded as of December 31,
1995.
The Company recognized a net gain (made up of two components) on
extinguishment of debt of $1,817,378 for the nine months ended September 30,
1996. The first component was a gain on extinguishment of debt of $2,149,191
relating to the Company's redemption of securities issued in connection with the
USC acquisition for an aggregate of 843,023 shares of the Company's Common
Stock and $308,500 of cash. This gain was recognized in the second quarter of
1996. These securities redeemed included (i) notes having an aggregate
principal amount of $3,150,000 and bearing interest at 11% per annum, (ii) an
aggregate of 125,000 shares of Series B Cumulative Convertible Preferred
Stock, and (iii) a warrant which was exercisable into an aggregate of
1,050,000 shares of the Company's Common Stock at any time prior to July 31,
2000 at a per share price of $1.25. The second component was a loss on
extinguishment of debt of $331,813 relating to the Company's redemption of
its $2,000,000 principal amount of convertible debentures from the proceeds
of the note offering which was incurred in the third quarter of 1996.
The Company incurred a net loss of $2,212,946 for the nine months ended
September 30, 1995 as compared to net income of $637,227 for the same period in
1996. This improvement is primarily attributable to the one-time net
extraordinary gain on extinguishment of debt and improved profit margins,
partially offset by increased interest expense.
LIQUIDITY AND CAPITAL RESOURCES
On August 12, 1996, the Company completed a $27.2 million private placement of
the Notes, which are generally convertible at any time after December 10, 1996
at a conversion price of $2.55 per share, subject to adjustments in certain
circumstances. The Notes are redeemable at the option of the Company in whole
or in part at any time on or after August 15, 1999 at annual redemption prices
starting at 107% of principal, plus accrued interest to the redemption date.
Each holder of the Notes has the right to require the Company to repurchase the
Notes in the event that all three of the following events occur: (i) the
Company incurs certain indebtedness, (ii) the pro-forma interest coverage
(as defined) is less than 2.0 to 1, and (iii) the average closing price of
the Company's Common Stock is less than $2.00 per share for the preceding
twenty trading days.
The Company has used the net proceeds received from the sale of the Notes of
approximately $25.4 million after deducting estimated
12
<PAGE>
transaction related fees and expenses to (i) refinance existing bank debt of
approximately $7 million, (ii) exercise the Company's option to purchase
843,023 shares of the Company's Common Stock from former USC shareholders,
(iii) redeem or repurchase certain of the Company's outstanding debentures
for $2.1 million, with the remaining balance of approximately $13.4 million
earmarked to effect acquisitions and strategic alliances, to make capital
expenditures, and for general corporate purposes.
On November 9, 1996, the average closing price of the Company's Common Stock had
been less than $2.00 for the prior twenty trading days and the Company's pro
forma interest coverage (as defined) was less that 2.0 to 1. Therefore, if the
Company incurs additional indebtedness (other than an accounts receivable and
inventory line of credit as permitted under the Note Indenture) then the holder
of the Notes would have the right to require the Company to repurchase the
Notes. Management currently is of the opinion that this restriction on
additional borrowings will have no adverse effect on the Company's operations.
The Company has experienced difficulties in obtaining the necessary
circuits from U. S. West Communications ("US West"), the Regional Bell Operating
Company ("RBOC") which operates in states such as Arizona, Colorado and New
Mexico currently being served by the Company. These circuits, which must be
obtained from the local RBOC, enable the Company's network to operate at its
optimum efficiency by increasing the number of calls originating and terminating
on the network. This problem with the availability of US West circuits is not
unique to the Company as other carriers are also experiencing this same
difficulty. US West has thus far not installed the necessary equipment in their
local central offices to meet the demand for circuits. Should the lack of
available US West circuits continue, this condition will have a negative impact
on gross profit margin and thus profitability because the Company will be
forced to terminate calls off its network at a higher cost than if terminated
on its network.
The Company experienced negative cash flow from operating activities of
$1,505,177 for the nine months ended September 30, 1995 as compared to
$1,859,549 for the like period of 1996. The negative cash flow of $1,859,549
for the nine months ended September 30, 1996 includes approximately
$1,000,000 of claims for transmission and access charges which the Company
believes were overbilled by the Company's long line transmission carriers
and several local exchange carriers. The Company intends to vigorously
pursue settlement of these disputed charges by demanding cash repayment
or credit against future billings.
Cash used in investing activities was $6,854,247 for the nine months ended
September 30, 1995 as compared to $2,546,914 for the like period in 1996. The
$2,546,914 in 1996 was attributable to increases in property and equipment
primarily related to switching equipment and network associated costs.
Cash provided by financing activities was $8,418,752 for the nine months ended
September 30, 1995 as compared to $16,273,674 for the like period of 1996. The
majority of the increase is attributable to the issuance of the Notes in August
1996.
At September 30, 1996, the Company had a cash and cash equivalent balance of
$12,690,949 as compared to $823,738 at December 31, 1995. As of September 30,
1996, working capital was a positive $13,211,725 as compared to a negative
$2,841,834 at December 31, 1995. This improvement is attributable to the
issuance of the Notes in August 1996.
On May 7, 1996, six holders of the Common Stock Purchase Warrants issued in the
Company's September 20, 1995 private placement exercised such warrants for an
aggregate of 1,070,000 shares of Common Stock at an exercise price of $1.25 per
share or $1,337,500. In connection with such early exercise, the Company issued
additional Common Stock Purchase Warrants to such holders exercisable into an
aggregate of 1,337,500 shares of Common Stock at an exercise price of $2.40 per
share between November 7, 1996 and May 7, 1998. One of the holders of such
warrants exercisable into 750,000 shares of Common Stock has agreed not to
exercise such warrant until January 7, 1997.
CAPITAL EXPENDITURES
Capital expenditures for the nine months ended September 30, 1996 totaled
$4,793,026, of which $1,346,112 was financed. The majority of these capital
expenditures relate to switching equipment acquired by means of capital leases
and network costs. Other than additional fixed facilities such as switching
equipment requirements as the network expands, future capital expenditures are
expected to be minimal. The Company's future capital expenditures related to
network expansion will be made primarily to acquire switches and related
equipment. Additional switching equipment would require significant capital
expenditures by the Company. The Company expects to use part of the proceeds of
the Note Offering for capital expenditures.
13
<PAGE>
HOLIDAY AND SEASONAL VARIATIONS IN REVENUES
The Company's revenues, and thus its potential earnings, are affected by holiday
and seasonal variations. A substantial portion of the Company's revenues are
generated by direct dial, domestic long distance commercial customers, and,
accordingly, the Company experiences decreases in revenues around holidays (both
domestic and international) when commercial customers reduce their usage. The
Company's fourth fiscal quarter ending December 31, which includes the
Thanksgiving, Hanukkah, Christmas and New Year's Eve holidays, and the Company's
first fiscal quarter ending March 31, historically have been the slowest revenue
periods of the Company's fiscal year. The Company's fixed operating expenses,
however, do not decrease during these quarters. Accordingly, the Company will
likely experience lower revenues and earnings in its first and fourth fiscal
quarters when compared with the other fiscal quarters.
EFFECT OF INFLATION
Inflation is not a material factor affecting the Company's business.
Historically, transmission and switched service costs per minute have decreased
as the volume of minutes increased. General operating expenses such as
salaries, employee benefits and occupancy costs are, however, subject to normal
inflationary pressures. Management has been able to contain these expenses
through cost control measures.
NEW ACCOUNTING STANDARDS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" (SFAS 123), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation expense
in the income statement, or the pro forma effect on net income and earnings per
share of such compensation expense is to be disclosed in the footnotes to the
Company's financial statements commencing with the Company's 1996 fiscal year.
The Company expects to adopt SFAS 123 on a disclosure basis only. As such,
implementation of SFAS 123 is not expected to impact the Company's consolidated
balance sheet or statement of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 20, 1995, a suit was filed in the 101st Judicial District Court in
Dallas, Texas, Cause No. 95-07136-E (SILVIO AVYAM V. SA HOLDINGS, INC. AND NORTH
AMERICAN TELECOMMUNICATIONS CORPORATION), against the Company and its wholly-
owned subsidiary North American Telecommunications Corporation ("NATC") in which
the plaintiff is seeking damages from the Company and NATC in excess of
$1,500,000 for alleged breach of contract, breach of fiduciary duty, conspiracy
and fraud arising out of the termination of the consultant agreement between
NATC and plaintiff. The plaintiff is also seeking an accounting with respect to
his relationship with NATC, the issuance of shares of the Company's Common Stock
allegedly owed to him and exemplary damages and attorney's fees. The Company
believes it has meritorious defenses to the alleged claims and intends to
vigorously defend such lawsuit. However, if the Company were required to pay
the alleged damages in such lawsuit, it could have a material adverse effect on
the Company's financial condition and results of operations. On February 5,
1996, the Company and NATC filed a counterclaim against the plaintiff for breach
of his consulting agreement and other related claims alleging an unspecified
amount of damages. On March 7, 1996, the plaintiff filed a general denial of
such counterclaim. A hearing was held on the Company's motion for summary
judgment on July 12, 1996 which was later verbally denied and no order was
issued. On September 24, 1996 the parties met for a court ordered mandatory but
nonbinding mediation which did not result in settlement. A nonjury trial has
been scheduled for December 9, 1996, and a joint motion for continuance of this
trial date was filed on November 8, 1996.
The Company is a party, from time to time, in routine litigation incident
to its business. Management believes that it is unlikely that the final outcome
of any of these claims or proceedings to which the Company is currently a party
if determined adverse to the Company would have a material adverse effect on the
Company's financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
14
<PAGE>
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule*
_____________
* Filed herewith
(b) REPORTS ON FORM 8-K
The Company filed on July 3, 1996 a Current Report on Form 8-K dated June
24, 1996 announcing the purchase from Howard Maddera, William L. Johnson and
Marianne Reed effective as of June 14, 1996 of (1) all 125,000 outstanding
shares of the Company's Series B Cumulative Convertible Preferred Stock, (2)
warrants to purchase an aggregate of 1,060,000 shares of the Company's Common
Stock, (3) and promissory notes in an aggregate principal amount outstanding of
$3,150,000. The consideration for such purchase consisted of an earlier cash
payment of $308,500 and the issuance of an aggregate of 843,023 shares of the
Company's Common Stock. No financial statements were filed.
On July 30, 1996, the Company filed a Form 8-K to correct certain exhibits
filed with the Company's Form 10-KSB for the fiscal year ended December 31,
1995. No financial statements were filed.
15
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
Date: November 14, 1996 SA Telecommunications, Inc.
By: Jack W. Matz, Jr.
------------------------------
Jack W. Matz, Jr.
Chief Executive Officer
By: J. David Darnell
------------------------------
J. David Darnell
Vice President, Finance and
Chief Financial Officer
16
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DOCUMENT DESCRIPTION
NO.
27.1 Financial Data Schedule*
_____________
* Filed herewith
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SA TELECOMMUNICATIONS, INC. FOR THE QUARTER ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 12,690,949
<SECURITIES> 0
<RECEIVABLES> 5,338,035
<ALLOWANCES> 398,585
<INVENTORY> 102,671
<CURRENT-ASSETS> 20,610,172
<PP&E> 8,704,678
<DEPRECIATION> 1,282,698
<TOTAL-ASSETS> 48,242,682
<CURRENT-LIABILITIES> 7,278,447
<BONDS> 0
1,310,092
0
<COMMON> 1,682
<OTHER-SE> 11,067,617
<TOTAL-LIABILITY-AND-EQUITY> 48,242,682
<SALES> 0
<TOTAL-REVENUES> 7,961,784
<CGS> 0
<TOTAL-COSTS> 4,769,107
<OTHER-EXPENSES> 3,421,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 658,212
<INCOME-PRETAX> (835,405)
<INCOME-TAX> 0
<INCOME-CONTINUING> (835,405)
<DISCONTINUED> 0
<EXTRAORDINARY> (331,813)
<CHANGES> 0
<NET-INCOME> (1,217,429)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
